8. Annuities | FINRA.org A joint life with last survivor contract covers multiple annuitants and ceases payments at the death of the last surviving annuitant. She may choose to receive monthly payments for the rest of her life. If a 42-year-old customer has been depositing money in a variable annuity for 5 years, and he plans to stop investing but has no intention of withdrawing any funds for at least 20 years, he is holding: The number of variable annuity accumulation units can rise during the accumulation period when additional units are being purchased. A)variable annuities will protect an investor against capital loss. Question #37 of 48Question ID: 606817 A variable annuity's separate account is: The separate account is used for both variable life insurance and variable annuity investments. The offers that appear in this table are from partnerships from which Investopedia receives compensation. All of the following statements regarding variable annuities are true EXCEPT: A. variable annuities may only be sold by registered representatives. A) The fact that the annuity payment may increase or decrease. audio not yet available for this language, {"cdnAssetsUrl":"","site_dot_caption":"Cram.com","premium_user":false,"premium_set":false,"payreferer":"clone_set","payreferer_set_title":"Variable Annuities","payreferer_url":"\/flashcards\/copy\/variable-annuities-5097323","isGuest":true,"ga_id":"UA-272909-1","facebook":{"clientId":"363499237066029","version":"v12.0","language":"en_US"}}. \text{Owner's equity:}&&&\\ For a nonqualified variable annuity, cost basis for the annuitant would use the after-tax dollars contributed. An annuitant assumes the investment risk of a variable annuity and is not protected by the insurance company from capital losses. Reference: 12.2.1 in the License Exam. D. Value of each annuity unit each month. Therefore, variable annuities must be registered with the state insurance commission and the Securities and Exchange Commission. Guaranteed Lifetime Annuity: How They Work, When They Pay You, Life Annuity: Definition, How It Works, Types, This is also generally true of retirement plans. All of the following are traits of a Fixed Annuity, except:AThe purchasing power of a fixed dollar benefit amount decreases as the cost of living increasesBThe insurer's general account assets guarantee the fixed annuity contractCThe insurer bears any investment riskDThe actual rate of interest credited will be based on the state-published All of the following are characteristics of Variable Annuity contracts EXCEPT The possibility of higher returns and greater income than fixed annuities, but there's also a risk that the account will fall in value The tax on this is $2,800 ($10,000 x 28%). Are There Penalties for Withdrawing Money From Annuities? D) unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. Variable Annuity Advantages and Disadvantages, Guide to Annuities: What They Are, Types, and How They Work. Question #17 of 48Question ID: 606802 VAs, blue chip mutual fund portfolios, ETFS & ETNs are all tied to market performance in some way and have risk characteristics that would not align in terms of suitability for this client. The separate account is NOT likely to invest in: Your answer, municipal bonds., was correct!. Fixed annuities pay a fixed monthly benefit which loses purchasing power if there is inflation. Surrender fees and penalties for early withdrawal. An equity indexed annuity is a type of fixed annuity, but looks like a hybrid. C)I and IV. She may choose to receive monthly payments for the rest of her life. A) Two-thirds of the withdrawal is taxable as ordinary income. \hspace{5pt}\text{Capital}&\text{Credit}&&\\ Brainstorm a list of criteria by which you would select and prioritize projects. When a variable contract is annuitized (distributed in regular payments, not as a lump sum), the number of accumulation units is multiplied by the unit value to arrive at the account's current value. Because they have a separate account in which the investor assumes the investment risk, they can only be sold by individuals with both insurance and securities licenses. The funds in an annuity are off-limits to creditors and other debt collectors. Suggesting that loans or drawing equity from a home to fund VA contracts have also been targeted as abusive sales practices. Changes in payments on a variable annuity correspond most closely to fluctuations in the: Once a customer annuitizes a variable annuity, which of the following statements are TRUE? Reference: 12.3.3 in the License Exam. There is a common apprehension that if an individual starts an immediate lifetime annuity and dies soon after that, the insurance company keeps all of the investment in the annuity. He originally invested $29,000 4 years ago; it now has a value of $39,000. However, if you take a withdrawal during the contractssurrender period, which can be as long as 15 years, youll generally have to pay a surrender fee. Meanwhile, options like an annuity can provide a guaranteed income during, With a deferred annuity, you make a one-time payment to the insurance. Life income riders are best suited for those who anticipate a lengthy retirement and are generally not yet retired when making the VA purchase. Premiums made into the annuity purchase accumulation units, c. The separate account provides for a guaranteed minimum return, d. Each month the payment will increase, decrease, or remain the same as the previous months payment based on the actual return as compared to the assumed interest rate (AIR). Variable Annuities | Investor.gov We'll bring you back here when you are done. C) The entire $10,000 is taxable as ordinary income. Annuities basics | III Azanswer team is here with the correct answer to your question. A)II and IV. A customer has a nonqualified variable annuity. Before buying a variable annuity, investors should carefully read the prospectus to try to understand the expenses, risks, and formulas for calculating investment gains or losses. A market-value adjusted annuity is one that combines two desirable features the ability to select and fix the time period and interest rate over which the annuity will grow, and the flexibility to withdraw money from the annuity before the end of the time period selected. Question #18 of 48Question ID: 606827 must provide full and fair disclosure. The growth portion is subject to a 10% penalty. The fund is kept within an IHT protected pension trust and can be passed down using a spousal bypass trust (SBT) can be used with personal pension plans to p Any purchase of securities will contain an element of risk. C)II and IV. If the annuitant should die during that time, any death benefit would be paid to a beneficiary designated by the annuitant at the time the annuity was purchased. Reference: 12.3.3 in the License Exam. \hspace{5pt}\text{Liability}&\text{Credit}&&\\ The value of the customer's account is converted into annuity units if and when the customer decides to annuitize the contract. Withdrawals from a nonqualified variable annuity are made on a LIFO basis, so the taxable earnings are considered taken out before principal. The accumulation period of a variable annuity may continue for many years. For a retired person, which of the following investments would provide the greatest protection against inflation? An example would be if a life annuity with 10-year period certain contract holder died after 5 years, payments would continue for 5 more years to the beneficiary and then stop. Before the contract is annuitized, your client, currently age 60, withdraws some funds for personal purposes. An annuity may be purchased under all of the following methods EXCEPT: Your answer, periodic payment immediate annuity., was correct!. Reference: 12.1.2.1.1 in the License Exam. D)the rate of return is determined by the underlying portfolio's value. Variable annuities are designed to combat inflation risk. If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? Variable annuities grow tax-deferred, so you dont have to pay taxes on any investment gains until you begin receiving income or make a withdrawal. C)none of these. d. B)variable annuities are classified as insurance products. As part of the registration requirements, a prospectus must be filed & distributed to prospective investors. Owners of variable annuities, like owners of mutual fund shares, may vote on changes in investment policy and for an investment adviser. Often used for retirement planning purposes, it is meant to provide a regular (monthly, quarterly, annual) income stream, starting at some point in the future. Immediate annuities are also available in fixed or variable forms. B)Capital gains taxation on the earnings withdrawn in excess of the owner's basis. Periodic payments are not a consideration because normally the payments into an annuity are level or in a lump sum. Which of the following are defined as securities? For an investor, which of the following is the MOST important factor in determining the suitability of a VA investment? A registered representative explaining variable annuities to a customer would be CORRECT in stating that: 1. a VA guarantees an earnings rate of return, 2. a VA does not guarantee an earnings rate of return, 4. a VA does not guarantee payments for life. The following table summarizes the rules of debit and credit. co. will have to pay the death benefit sooner than expected - that is, before receiving some of the expected premium payments. C)The entire $10,000 is taxable as ordinary income. Variable annuity salespeople must register with all of the following EXCEPT: A) FINRA. The fixed payment that the annuitant receives loses purchasing power over time as a result of inflation. A variable annuity is both an insurance and a securities product. The most suitable option and one considered effective for married couples is a single joint and last survivor contract. To prevent this situation individuals can buy a guaranteed period with the immediate annuity. The investor has already paid tax on the contributions but the earnings have grown tax-deferred. B)Universal variable life policy. A universal variable life policy should be purchased primarily for its insurance features, not its investment features. For anyone who may need access to the sum invested at a later time, a VA would not be considered a suitable recommendation. B)100% taxable. Single premium annuities are often funded by rollovers or from the sale of an appreciated asset. This recommendation is: Generally the most that creditors can access is the payments as they are made, since the money the annuity owner gave the insurance company now belongs to the company. Value in separate account b. Accumulation units c. Death benefit d. Cash value Variable whole life policies have a guaranteed minimum death benefit. If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? A guaranteed period commits the insurance company to continue payments after the owner dies to one or more designated beneficiaries; the payments continue to the end of the stated guaranteed periodusually 10 or 20 years (measured from when the owner started receiving the annuity payments). For example, if the income is monthly, the first payment comes one month after the immediate annuity is bought. B) the state insurance department. [B]The holders may vote to change investment objectives. A variable annuity does not guarantee an earnings rate because earnings will depend on the performance of the separate account. A)Fixed annuity contract with a discussion regarding purchasing power risk B)value of annuity units. A fixed annuity is a contract between the policyholder and an insurance company. He earned the Chartered Financial Consultant designation for advanced financial planning, the Chartered Life Underwriter designation for advanced insurance specialization, the Accredited Financial Counselor for Financial Counseling and both the Retirement Income Certified Professional, and Certified Retirement Counselor designations for advance retirement planning. Fixed income instruments, like bonds and fixed annuities, are subject to purchasing power risk. C)Mortality risk. Fixed period annuities A fixed period annuity pays an income for a specified period of time, such as ten years. We also reference original research from other reputable publishers where appropriate. When the first party dies, the annuity payment is made to the survivor. In addition, an element of risk must be present. In the first year, you decide to withdraw $50,000. All of the following investment strategies offer either fully or partially tax-deductible contributions to individuals who meet eligibility requirements EXCEPT: The minimum guaranteed death benefit is provided by that portion of the payment invested in the insurance company's general account. B)mutual fund units. Universal variable life policies If he wants to purchase an annuity and start receiving payments now, what would you suggest? The payout compared to the initial payout upon annuitization. The most important consideration in purchasing a VA is to be aware that benefit payments will fluctuate with the investment performance of the separate account. B) the rate of return is determined by the underlying portfolio's value, C) such an annuity is designed to combat inflation risk, D) the number of annuity units becomes fixed when the contract is annuitized. A policyholder will make a lump sum payment or a series of payments in exchange for a guaranteed amount of income. Fixed annuities typically earn at a lower, stable rate. Question #12 of 48Question ID: 606814 The # of accumulation units can rise during the accumulation period, 3. Immediate annuities An immediate annuity is designed to start paying an income one time period after the immediate annuity is bought. the state banking commission. Many annuity companies offer a variety of investment options. C)number of accumulation units. D)Joint and last survivor annuity. The separate account is NOT likely to invest in: Deferred annuities A deferred annuity is designed to collect premiums and accrue investment income over an extended period for payout at a later timefor example, when an individual retires. A)II and IV. C)not suitable because a lifetime income rider is only for someone who is already retired B)I and III. The payment might be invested for growth for a long period of timea single premium deferred annuityor invested for a short time, after which the payout beginsa single premium immediate annuity. The amount that is paid depends on the age of the annuitant (or ages, if its a two-life annuity), the amount paid into the annuity, and (if its a fixed annuity) an interest rate that the insurance company believes it can support for the length of the expected payout period. Insurance companies introduced the variable annuity as an opportunity to keep pace with inflation. Variable annuities must be registered with: A prospectus for a variable annuity contract: When may a variable annuity account be surrendered? B)changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. An accumulation unit in a variable annuity contract is: Your answer, an accounting measure used to determine the contract owner's interest in the separate account., was correct!. The # of annuity units rises once annuitization begins. Single premium annuities A single premium annuity is an annuity funded by a single payment. A)the yield is always higher than mortgage yields. The correct answer is: Defines a securities product All of the following policy elements are not guaranteed in a variable whole life policy, EXCEPT: Select one: a. Lifetime annuities A lifetime annuity provides income for the remaining life of a person (called the annuitant). With regard to a variable annuity, all of the following may vary EXCEPT: Your answer, number of annuity units., was correct!. Refinancing a home to draw out equity has been identified by FINRA as an abusive sales tactic regarding the sales of VAs. A)II and III. A)IPO. Question #16 of 48Question ID: 606807 An important basic characteristic of common stocks that makes them a suitable type of investment for the separate account of variable annuities is: B) the yield is always higher than bond yields, C) the yield is always higher than mortgage yields, D) changes in common stock prices tend to be more closely related to changes in the cost of living than changes in bond prices. B)unsuitable because her situation exposes her to surrender charges and early withdrawal penalties in exchange for insufficient benefits. Which of the following recommendations would best meet the customer profile? Your answer, The policyowner., was correct!. D)the safety of the principal invested. CDs insured by the FDIC. An accumulation unit in a variable annuity contract is: If they buy a variable annuity, their money can be invested in stocks, bonds or mutual funds. Please sign in to access member exclusive content. If your client, who is in the 28% tax bracket, makes a lump-sum withdrawal of $15,000, what tax liability results from the withdrawal? Each of the remaining statements are true. How to Navigate Market Volatility While Saving for Retirement, Variable Annuity: Definition and How It Works, Vs. The money paid in will be returned tax free, but the earnings portion will be taxed as ordinary income. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. The holder of a VA receives the largest monthly payments under which of the following payout options? are purchased primarily for their insurance features Variable Annuities. A fixed annuity is an insurance contract that pays a guaranteed rate of interest on the owner's contributions and later provides a guaranteed income. A)the number of annuity units becomes fixed when the contract is annuitized. C) a VA contract does not guarantee any type of return. Some state statutes and court decisions also protect some or all of the payments from those annuities. One of the following would achieve that objective but a suitability discussion regarding it's risk should also occur. Your answer, Purchasing power risk., was correct!. Distributions to the annuitant will fluctuate during the payout period. Please sign in to share these flashcards. In March, the actual net return to the separate account was 8%. Among annuities, variable annuities differ from fixed annuities, which provide a specific and guaranteed return. Question #38 of 48Question ID: 606798 The holder of a variable annuity receives the largest monthly payments under which of the following payout options? GuranteedExamLife Flashcards by Gabriel Martinez | Brainscape A separate account will invest in a number of different securities. holder lives longer than expected, 4. a life ins. B)Tax-free municipal bonds B) a VA contract is not required to be sold by prospectus because it is an ins. From an insurance company, mortality risk turns out unfavorably if: 1. an annuitant lives longer than expected, 2. an annuitant dies sooner than expected, 3. a life ins. Variable annuity salespeople must be registered with FINRA and the state insurance department. Premiums made into the annuity purchase accumulation units. Reference: 12.2.1 in the License Exam, Question #48 of 48Question ID: 606835 B. separate account may consist of mutual funds. All of the following are characteristics of variable annuity contracts A customer has contributed $1,000 a year for 10 years to his tax-deferred nonqualified variable annuity. a variable annuity does not guarantee payments for life. D)Investment risk. Reference: 12.1.4.1 in the License Exam. The annuity unit's value represents a guaranteed return. Fixed annuities. A)exempt from taxes Since the client is older than 59 at the time of distribution, the additional 10% penalty tax is not incurred. holder dies sooner than expected, the ins. An annuity is an insurance product that promises to pay out income at a future date based on invested funds. Variable annuities are designed to combat inflation risk. The annuitized payments are viewed for tax purposes as A)not suitable Question #47 of 48Question ID: 606813 Variable annuity contracts were devised to help investors keep pace with inflation. Fixed Annuity, Retirement Annuities: Know the Pros and Cons. by jmacewe, If the client, who is in a 30% tax bracket, makes a random withdrawal of $15,000, what will he pay to the IRS? C)insurance companies keep variable annuity funds in separate accounts from other insurance products. Your answer, The entire $10,000 is taxable as ordinary income., was correct!. The pooling is unique to annuities, and its what enables annuity companies to be able to guarantee a lifetime income. D)suitable if she has enough equity in the home to fund the variable annuity without cashing out the other VA contract, Based on the information given in the question, the VA recommendation would not be suitable. C)such an annuity is designed to combat inflation risk. a. variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic pay-ments to you, beginning either immediately or at some future date. Having a supplemental income stream for retirement and keeping pace with inflation should be the reasons to consider a VA as suitable, but not preservation of capital.
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